ISAs

How are ISAs taxed?

What is an ISA? 

Individual Savings Accounts (ISAs) are tax efficient savings accounts that invest in stocks and shares or cash. 

Introduced by the Government in 1999 as a replacement for Personal Equity Plans (PEPs), the rules were revised and the subscription levels increased with effect from 6 April 2009/10.

You should use up your annual ISA allowance very year. ISAs offer the best combination of accessibility and tax efficiency available.

   

Adults have an annual overall investment allowance of £10,200, all of which can be invested in a stocks and shares ISA. Alternatively the investment can be split, with up to £5,100 of this amount being invested in a cash ISA and the remainder being invested in a stocks and shares ISA, either with the same or a different provider. 

Money held in previous tax years' cash ISAs can be transferred to stocks and shares ISAs with no impact on the current year's allowance. Money saved in the current tax year in cash ISAs can be transferred to stocks and shares ISAs within the same tax year. 

Existing PEPs (those opened prior to 5 April 1999) automatically became stocks and shares ISAs on 6 April 2008 and are subject to those regulations.  

A stocks and shares ISA can include:

- Individual shares or bonds

- Pooled investments such as unit trusts, open ended investment companies (OEICs), life assurance investments or investment trusts 

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How are ISAs taxed? 

Income Tax Benefits 

Although dividends from UK equities will no longer receive a 10% tax credit, investments sheltered within an ISA are still free from income tax. You do not pay tax on interest and bonuses. There is also no income tax liability on withdrawals from your ISA. 

Corporate bonds will continue to be entitled to interest gross of tax at 20% 

Interest paid on cash held temporarily in a stocks and shares or insurance ISA will be taxed at a composite rate of 20%. 

Capital Gains Tax (CGT) Benefits 

All gains from any investments sold within an ISA are free of CGT.

Any losses cannot be allowed to offset gains made anywhere else. 

You do not have to declare income or gains made from your ISA on your tax form.

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